By Svea Herbst-Bayliss
March 31 (Reuters) - Activist investor Irenic Capital Management said on Tuesday that technology company Snap could be worth at least five times as much as today's valuation but needs to cut costs, optimize its portfolio and use artificial intelligence better.
"Snap should be worth a lot more than $7 billion," Irenic portfolio manager Adam Katz wrote to Snap co-founder and Chief Executive Evan Spiegel, adding that if the company follows Irenic's blueprint for change, its valuation
could soar to around $35 billion.
Irenic said on Tuesday that it has an economic interest of roughly 2.5% of the company's Class A shares.
Irenic, which has a history of successfully pushing for change at companies in the technology and aerospace sectors, urged Snap to spin off or shut Specs, its augmented-reality eyeglasses unit. It also called on Snap to consider cutting costs through layoffs and to buy back more discounted stock, among other moves.
"Snap should not continue doing what it has been doing. It’s not working," Katz said in the letter. "And we’re not telling you anything you don’t know already."
Investors reacted quickly by pushing up Snap's stock price more than 12% on the last trading day of the quarter. Since the start of the year, the stock price has lost 45%.
While Katz complimented management by noting how it built a widely used social network, he also said, "we think you have a second act," and leaned heavily on how Snap could make better use of artificial intelligence.
Bloomberg reported Irenic's position shortly before Irenic published its letter to the company.
Snap said it engages with all shareholders and welcomes their thoughts. "We’ve taken steps to improve performance, strengthen free cash flow, and offset dilution, and will continue to evaluate actions that drive long-term value for all stockholders," Chairman Michael Lynton said in a statement.
Last year, Snap said it would buy back up to $500 million worth of Class A shares. It also partnered with Perplexity AI to integrate a conversational search engine into Snap.
(Reporting by Svea Herbst-Bayliss in Boston and Kritika Lamba in Bengaluru; Editing by Jonathan Ananda and Matthew Lewis)
